Projecting a stable outlook for the domestic auto sector this year, ratings agency India Ratings today said it expects a muted growth in both passenger and commercial vehicles segments due to structural weaknesses and over-capacity among other factors.

"Our outlook for the auto sector is stable. The growth will continue to be there but it will be muted as compared to previous years," India Ratings Director Corporate, Deep N Mukherjee, said here.

He said there are some early signs of structural weaknesses in the passenger vehicle segment adding, "there are also some early signs of building of some over capacity in passenger's vehicle segment as well."

The volume growth in the passenger vehicles is estimated to be around 8-9 per cent which will be largely driven by the utility vehicles, which are expected to clock a growth of 30-35 per cent in the year, India Ratings said.

The cars and vans are likely to clock lower growth rates of around 2-3 per cent and 0.5-1.5 per cent respectively, it said adding volume growth in UVs is likely to be significantly lower than that in 2012 due to an expected increase in diesel prices during the year.

According to the agency, low demand coupled with a capacity overhang in passenger vehicles and intensifying competition is likely to reduce industry's operating margins on an average by around 0.5-1.0 per cent for the commercial vehicle segment and 1.5-2 per cent for the passenger vehicle.

Similarly, light commercial vehicles are likely to drive the overall volumes in the commercial vehicle space with the segment expected to post 13-15 per cent growth in the overall growth of 10-11 per cent for the CV segment.

The domestic volume growth in the medium and heavy commercial vehicle is likely to be negative at 6-9 per cent in the eventuality of industrial activities remaining at their current level, the agency said.